Personal Financial Planning Tips for the Recession From a CFP and Author

  • Some financial analysts predict that there will be a recession in the next 12 months.
  • A recession, along with inflation and rising interest rates, can really impact the wallet of Americans.
  • It’s time to make your finances more resilient before the economic downturn begins.

With inflation at a 40-year high and interest rates rising rapidly, consumers may face a recession. Conference Board putting the likelihood of a US recession in the next 12 months at 96%.

Consumers are already dealing with higher grocery and utility bills. Recessions usually lead to job uncertainty, tighter lending policies by financial institutions, and slower investment growth. All of this leads to a possible recession that puts consumers’ financial security at risk.

Preparation for any unpleasant recession-induced consequences should begin long before an economic downturn begins – and it’s not too late, according to Jamie Hopkins, a Certified Financial Planner and personal finance and retirement expert. He believes there are tangible steps investors and consumers can take to protect their financial goals. in “Find Your Freedom“The upcoming book he co-authored, Hopkins advises that working with a financial planner will allow you to live your best life by design and not by default. The goal with this book is to help people retire better and find freedom in their use. money too.

He shares with Insider his top strategies for protecting your finances before and during a financial downturn.

Be smarter with your money

Many people who see a recession on the horizon may immediately start selling their investments and want to keep their money in a regular savings account; Hopkins cautions against this.

“Parking your cash in the bank is not the best thing to do. If you can be strategic and smart during recessions, this can be a good time to invest,” said Hopkins.

He added: “Look at cash equivalents like an ETF. If you are looking for a place to save cash, there are market funds and REITs. Having too much cash in the bank during this time can result in missed investment growth opportunities.”

Postpone expensive purchases for a while

Experts typically advise against spending more than 30% of your net income on discretionary purchases. With high inflation and rising interest rates, it is better to put unnecessary large expenditures aside.

“If you can delay buying a house, taking an expensive vacation, etc., it’s reasonable to do that,” Hopkins said. “Since we are going into uncertain times economically, it is best to keep our discretionary purchases at least until we are on a solid path again.”

How do you service your debt?

In a troubling economic period, the first thought may be trying to pay off all debts but having access to money for emergencies or opportunities for investment may be a better use of their funds.

“There’s a difference between negative high-interest credit card debt and a mortgage or a low-interest line of credit for an emergency,” Hopkins said. “Being in a position where you can respond effectively to an emergency or even a job loss makes you better prepared for an economic downturn.”

Stay the course with your investment portfolio

If you’re close to retirement, consider having any withdrawals you’ll make in cash.

“If you plan to have, for example, the first 2 years of your retirement withdrawals in cash and ready, you won’t have to worry now about what the market is doing and how inflation and interest rates will affect your portfolio,” says Hopkins. .

It’s also important not to make snap decisions with your portfolio. “Think about where you are now and don’t do anything to jeopardize that based on short-term economic events. The retirement landscape is typically 20 years, a recession will most likely last a year,” said Hopkins.

Prepare your finances before the economic downturn begins

Taking steps to prepare for an economic downturn before it happens will relieve the stress and panic that can arise when experiencing a recession.

“I can’t stress this enough: don’t wait until the last minute and don’t panic, you will almost always make bad financial decisions based on stress and panic,” says Hopkins. “If you’re nervous about your financial picture heading into a recession, think about the steps you can take to strengthen your financial position.

“It’s times like this that having a financial plan is key, if you have a good financial and investment strategy, you’ll be in a strong financial position for any downturn.”

Leave a Reply

Your email address will not be published. Required fields are marked *